There’s a great deal of misinformation surrounding the bankruptcy process – perhaps the most damaging being that it leads to financial ruin. The truth is, like most major life decisions, bankruptcy comes with both pros and cons for those who file. If you’re facing insurmountable debt, you may be wondering if bankruptcy is the right path for you. Here’s everything you need to know about bankruptcy and it’s implications on your life.
The pros of bankruptcy
- Eliminating debt: Of course, the biggest perk of filing for bankruptcy is that it wipes away all or a significant portion of your debts for a fresh financial start. While bankruptcy won’t discharge all types of debt, like student loans, it can provide the relief necessary to get things back on track.
- The automatic stay: The moment you file for bankruptcy, it becomes illegal for creditors or lenders to attempt to collect any further payments. An automatic stay means that you won’t have to deal with any harassing phone calls or letters as you pay off your debts.
- Restoring your credit: If you didn’t have a good credit score to begin with – or even a fair score – filing for bankruptcy is an excellent opportunity to improve your credit score over time. Though it isn’t always an easy journey, it can help you establish better credit spending habits to avoid making the same mistakes.
The cons of bankruptcy
- Qualifying for new credit: It can be challenging to be eligible for new credit right after filing for bankruptcy. Most people will experience a significant drop in their credit score if they were previously in good standing, meaning you may face higher interest rates or only qualify for a secured credit card until you rebuild your credit.
- Bankruptcy is public record: While filing for consumer bankruptcy is nothing to be ashamed of, many aren’t comfortable knowing that their bankruptcy filing will also be public record. Though anyone can request a record of your filing, eliminating your debts is often a worthy trade-off.
- Mental health problems: Let’s face it; filing for bankruptcy can be a stressful process. Many people experience feelings of inadequacy or failure after they file for bankruptcy, even if they are in debt for reasons beyond their control.
Filing for bankruptcy isn’t for everyone, but for most, discharging debt is one pro that outweighs any cons of the process. If you are in over your head in debt, bankruptcy may be the right choice for you.